Our good friend and prolific Great Mondaydact Browser Buster contributor The Male Brain has written in with another one of his excellent guest posts. The inspiration for the post is to be found in a very interesting video about the coming intergenerational wealth transfer between the Baby Boomers and their Millennial heirs. Watch the video in full first – it’s very informative – and then read the rest of the post from Dawn Pine, which I’ve put in here with minimal editing:
“Check your privilege”. “Checked. I got it”
I’m one of the lucky ones. I once checked my income and found that I’m ranked somewhere around 23M in the world. Meaning that I’m (almost) the 0.1% (not the 1%, I’m actually ranked globally as better than 99.7% of the world population in terms of income). It is even going to get better when my Boomer parents leave me and my siblings their inheritance.
Yes, I know. Not everyone relates to it. Go figure.
My parents worked hard and saved. They invested their money (and inherited as well) to create a nice “trust-fund” (but with no strings attached). They taught me and my siblings the importance of money – how to leave below your means, how to save (to some extent) and how to think about the future.
Yeah, I had good parents.
Here is the interesting thing. My father built a one-man-operation, for him. He asked me when I was 30 to join. I declined, and with difficulties I managed to explain that I need to learn and understand my field first. It took me 9 years before I joined, part time, and additional 5 years before it became a “double one-man-operation”. We both “work” for the same company, but I have my projects and customers and he has his. Since last year I’m the one inputting most of the money into the company. COVID-19 and all.
Now it’s time to discuss wealth transfer.
How do you transfer the wealth? Easy – you move shares from one share holder to another. Easy? More like “easier said than done”. I can list here a few problems:
- Ownership means responsibility – this is a term I frequently use with the girls in dating. It means that when you own something, you are now in charge of its day-to-day operation and future.
- When it will happen, I will need to wear all hats – operation, finance, legal, sales (already on top of that), marketing (owning it this year) and management. Some of them are great, but some are a headache.
- Conflict of interest – not in the legal manner, but in the “family relations” manner. My parents are strong-willed individuals with world view “slightly” different than me. We’re not going head to head, but they built it, and now someone else will manage it and “do other stuff then those intended”. It’s like seeing someone else sit in your home and changing the furniture, while you are packing. [I know that feel, bro. Jus’ sayin’.]
- Future success – The reason my father was successful (apart from his skills) is that after a few years, he was doing it “for fun”. I know this sounds odd, but 10 years after he founded the company, he did not need the money. He works there because he enjoys it. I work there (for now) because I also need to get paid. If for some reason I fail, the company will be closed and I’ll be back to being hired.
- Other family members – thank God this issue is extremely minor in my case. However, imagine that other family members had stakes in the company. This could be devastating to managing it.
- Picking the right person – My sibling, for example, has ALWAYS been an employee. That sibling is not in any way suited for this position of being the guy in charge. Imagine putting the wrong person at the helm.
Back to the title – what’s it like being in the middle of a wealth transfer?
The simple answer is: “it’s complicated”. For me there is more good than bad. For start, my FU fund has doubled. I already had a few years of money to spare, but now it’s almost double. This makes me more at ease. On the other hands, I know that my parents will be involved in the future, as long as they can, even if I own the company. This means that future “conflict of views” are potentially in the making.
The main issue for the short term is the responsibility. I’m in the process of taking more. It’s like growing up, but more boring. The main issue for the mid-long term is a new vision for the company/myself (it is a one-man-operation right now, and I don’t believe it needs to scale up in employees).
It seems like it’s a way easier problem than being out of a job during COVID-19. I agree. It is a completely different category of problems. In my case, only one man may lose his job, if the company fails the wealth transfer, but I’m familiar with other companies, with more employees. What will happen to them if that wealth transfer fails?
DIDACT ADDS:
The coming wealth transfer between Boomers and Millennials is definitely going to be one of the defining economic events of the next few decades. The problem is that the transfer will occur between two fiscally incontinent generations.
The Boomers had, and have, a reputation for profligacy, narcissism, and selfishness that is second to none in all of the previous generations. Yet the Millennials appear to be set to exceed all of the foolishness of their parents with their inability to obey the basic principles of sound financial practice.
There will be plenty of opportunities as well as challenges created by this wealth transfer. My take on American Boomers is obviously pretty negative, though I think Boomers in other countries tend to be a heckuva lot more sensible and careful with their wealth. But American Boomers evidently live by the mantra that “he who dies with the most stuff, wins”.
The Boomers were immensely fortunate to live through a time of tremendous economic good fortune without any real catastrophic collapses that can measure up to the Great Depression that their parents and grandparents lived through.
But Millennials have lived through not one, not two, but now three catastrophic economic collapses – the 2001 collapse, the 2008 collapse, and now the 2020 collapse. The collected trauma of these economic setbacks has resulted in a generation with significantly shortened time preferences and significantly lowered ability to generate real savings and wealth.
That means that, as the video above points out, a lot of Millennials are going to fritter away their inheritances. They will not obey Dawn Pine’s wisdom about treating the companies and trust funds and other assets that they inherit, as owners and creators rather than mere beneficiaries.
For that is the attitude that is necessary among Millennials to create real wealth through time – an attitude of ownership that will drive their wealth to greater levels and generate economic opportunities for others.
It remains to be seen whether handing over trillions of dollars of inherited wealth to Millennials will be a benefit or drawback. Given the amounts involved, those are rather anodyne words for the nature of the transfer, but we’ll find out sooner or later what it will all come to.
1 Comment
On the plus side, all of us Gen-Xers are positioned to soak up all that millenial stupidity, and I am doing so right now 🙂